I a new forum member and recently read the Bogleheads' Guide to Three-Fund Portfolio which I thought was extremely helpful. I am 43 years old hoping to work for another 20 years and making changes to my 401k selections. I have the option to choose a Vanguard Retirement Target Fund or selecting a split based on the 3 funds below.

I a new forum member and recently read the Bogleheads' Guide to Three-Fund Portfolio which I thought was extremely helpful. I am 43 years old hoping to work for another 20 years and making changes to my 401k selections. I have the option to choose a Vanguard Retirement Target Fund or selecting a split based on the 3 funds below.

Any advice on what might be the best course of action for investment selections. I should add that I am comfortable with risk and would stick with my plan when things get rocky.

I would pick the Vanguard Target Date fund if it allocates and transitions in a way you like, and the expense ratio is not much more than what you would pay for the three funds. My own 401k offered non-Vanguard target date funds that were ok, except they charged ten times more in fees than a roughly equivalent three fund approach. So, no thanks.

Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Also, in order to simplify my 401k portfolio my next question is that I am considering getting out of the funds listed below and transferring the money to Vanguard funds. Additionally, I have $97k in the Vanguard 500 Index Fund (VFIAX) in an IRA rollover account. Below are the funds/balance/number of shares/% of my 401k:

Fabulous! I personally would transition the 401k completely to the 2045 fund, if you are comfortable with the allocations regarding stock vs. fixed income, domestic vs. international, etc. Also be sure you are comfortable with the fund's scheme for moving toward fixed income in future years.

Will your 401k plan accept a rollover from your IRA? Then you could put everything in the 2045 fund and call it good.

Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Thank you. For simplicity, I like the idea of the target fund but wanted to keep the international allocation under 25% and the 2045 target fund invests nearly 36% in the Total International Stock Index. Still trying to decide whether I should split between the 3 funds (listed below) or select the target fund.

My other point to consider is that I am squirreling away a substantial portion of my annual income into a Deferred Compensation account and plan to use the proceeds to bridge my income from around age 60/62 to 70 when I hope to claim the higher Security monthly payment and begin withdrawing from my 401k. Since I will not touch the 401k until I am 70, it may make sense to keep it invested more aggressively before the target fund scheme for moving into future years. Sorry if I sound scatter brained as I am considering these factors as I type my response.

wanted to keep the international allocation under 25% and the 2045 target fund invests nearly 36% in the Total International Stock Index.

Yes, if the 36% international is a deal breaker, then you will have to roll your own portfolio. You should consider all your accounts together when determining your AA. For example, if your deferred compensation is a form of fixed income, figure that into the AA.

Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

For the deferred comp account I have the option to select an Advisor Managed Portfolio with various investment styles but the expense ratio is 0.75%. With the Fidelity VIP Index 500, the expense ratio is only 0.10% so seems to make better sense to stick with that fund. T. Rowe Price fund charges 0.75% and the Dreyfus fund charges 0.60%. I may consider increasing the contribution % to the Fidelity VIP Index 500 and could always adjust it in later years. Currently once I adjust my 401k holdings, I do not have any fixed income.

The only other Vanguard funds options for the deferred comp account are:

The 36% allocation is not necessarily a deal breaker, it just means you will need to direct your money to two different funds instead of a single target date fund. You can allocate 70% of your contribution to the Target Date 2045 fund, and 30% to an S&P 500 index or Total Stock Market fund. 0.70 * 36% = 25.2% of your money is thus allocated to international stocks, rest to domestic stocks, and the bond percentage remains the same.

As mhadden1 suggested, I may transfer the balance of my IRA (Vanguard 500 Index Fund) to my 401k to have it all in one place. From there I like your suggestion to allocate 70% of my contribution to the Target Date 2045 fund and 30% to either the Vanguard Institutional Index Fund (S&P 500 index) or Total Stock Market Fund.

Any advice on choosing one over the other (S&P 500 vs. Total Stock Market Index)?

As mhadden1 suggested, I may transfer the balance of my IRA (Vanguard 500 Index Fund) to my 401k to have it all in one place. From there I like your suggestion to allocate 70% of my contribution to the Target Date 2045 fund and 30% to either the Vanguard Institutional Index Fund (S&P 500 index) or Total Stock Market Fund.

Any advice on choosing one over the other (S&P 500 vs. Total Stock Market Index)?

Total Stock Market and S&P 500 are very similar in composition and past performance and thus, hardly any practical difference. TSM includes the market weight of mid and small caps which means more diversification. I favor it for that reason.

Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Another thought....when rolling over the IRA ($97k in Vanguard S&P 500 Index fund) into my 401k, would it make sense to consider completely funding the 401k with the Vanguard 2045 Target Fund and then for the deferred comp account completely funding it with the Fidelity VIP 500 index? For the deferred comp account I will be contributing approximately $75k per year. Additionally I max out my 401k and my wife has no 401k at her job.

I have less Investment options for the deferred comp account and like the idea of a low cost S&P 500 index fund and with the 2045 Target fund, it offers diversification.

I should add that my wife and I have no children and other than our mortgage (owe $355k on 30 year fixed mortgage at 3.50%) we have no debt. We are fortunate that there is plenty of equity in the house (approximately $750k) and want to swing for the fences when planning for our retirement investments. We live a pretty simple life but want to build wealth for a comfortable retirement.

You can allocate 70% of your contribution to the Target Date 2045 fund, and 30% to an S&P 500 index or Total Stock Market fund. 0.70 * 36% = 25.2% of your money is thus allocated to international stocks, rest to domestic stocks, and the bond percentage remains the same.

The bond percentage doesn't stay the same though. A full 30% of the portfolio is at 100:0 AA that has to swing the average AA higher in stocks.

If you added in a bond fund too you could keep the overall AA the same while reducing international but that's a moving target with the glide path of the Target Date.

You can allocate 70% of your contribution to the Target Date 2045 fund, and 30% to an S&P 500 index or Total Stock Market fund. 0.70 * 36% = 25.2% of your money is thus allocated to international stocks, rest to domestic stocks, and the bond percentage remains the same.

The bond percentage doesn't stay the same though. A full 30% of the portfolio is at 100:0 AA that has to swing the average AA higher in stocks.

If you added in a bond fund too you could keep the overall AA the same while reducing international but that's a moving target with the glide path of the Target Date.

Agreed that the bond percentage wouldn't stay the same due to market fluctuations. There should be a periodic re-balancing to bring back the amounts to 70:30 ratio between the two funds. Once an year re-balancing should be more than enough.

But then I assumed that the original poster is ok to take on the task of periodic re-balancing, given that the first post talks about contributing to three different funds and "sticking with the plan".

Thanks...after thinking about it some more, when combining the IRA with the 401k, I will transition completely to the Vanguard Target 2045 Fund. It will definitely simplify things, offer diversification and adjust the portfolio as the retirement date approaches.

With the deferred comp account for the time being I will contribute 100% to the Fidelity S&P 500 Index (0.10% expense ratio) and re-balance when neded.

For the deferred comp account I have the option to select an Advisor Managed Portfolio with various investment styles but the expense ratio is 0.75%. With the Fidelity VIP Index 500, the expense ratio is only 0.10% so seems to make better sense to stick with that fund. T. Rowe Price fund charges 0.75% and the Dreyfus fund charges 0.60%. I may consider increasing the contribution % to the Fidelity VIP Index 500 and could always adjust it in later years. Currently once I adjust my 401k holdings, I do not have any fixed income.

The only other Vanguard funds options for the deferred comp account are:

The Deferred Compensation Program is clearly not fixed income, so you need to include a bond fund in my opinion.

What bond funds are offered in your 401k?

I suggest around 20-30% of stocks in international stocks. Historically 20% of stocks in international stocks would have captured about 85% of the maximum diversification benefit, and 30% of stocks in international stocks would have captured about 99% of the maximum diversification benefit. Vanguard paper "Considerations for Investing in Non-U.S Equities", p. 6.

That works out to about 30% bonds, 20% international stocks, and 50% domestic stocks. Asset allocation is a very personal decision which you must make based on your own ability, willingness and need to take risk.

As mhadden1 suggested, I may transfer the balance of my IRA (Vanguard 500 Index Fund) to my 401k to have it all in one place. From there I like your suggestion to allocate 70% of my contribution to the Target Date 2045 fund and 30% to either the Vanguard Institutional Index Fund (S&P 500 index) or Total Stock Market Fund.

Any advice on choosing one over the other (S&P 500 vs. Total Stock Market Index)?

For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 27 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX.

Rolling over your IRA into your 401k is a good idea. Your 401k offers good index funds to use, and that gives you one less account to keep track of and manage. In my opinion it is simpler to have everything in one place.

You could switch the Deferred Compensation Program to Vanguard VIP Balanced which is also in the range 70/30
-- 60/40 equity/fixed income.

"Everything should be as simple as it is, but not simpler." - Albert Einstein |
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